Rocket Internet backs away from start-up investing in tech downturn

Oliver Samwer, one of Europe’s leading tech investors, once told entrepreneurs to adopt “blitzkrieg” tactics in order to rapidly win market share: “I am the most aggressive guy on internet on the planet,” he wrote in an email to colleagues more than a decade ago. “I will die to win and I expect the same from you!”

His Berlin-based firm Rocket Internet went on to back groups like meal-kit maker HelloFresh and online retailer Zalando that later held initial public offerings at multibillion valuations. 

Over recent years, however, Samwer’s firm has quietly left its roots as an early investor in the continent’s hottest start-ups. Instead, Rocket has morphed into something more diverse but, potentially, more lucrative: a complex investment house that manages various types of capital, from debt to public stocks.

This account of Rocket Internet’s finances and operations is based on company documents, several people with knowledge of the firm and other investors and executives. Together, they provide a detailed look at the company since it began a delisting process from Frankfurt’s stock exchange markets three years ago with a market capitalisation of about €2.5bn. 

Rocket’s management did not respond to requests for comment.

In one deal, it provided more than £100mn in debt financing to financial technology company Revolut in 2019, according to filings and people familiar with the transaction. Rocket has also built significant stakes in public technology companies such as Amazon and Alibaba.

Meanwhile, over the past couple of years, Rocket has slashed staff at its venture funds, closed one of its investment units, abandoned plans to raise a new start-up fund, and urged certain nascent tech companies it has invested in to adopt more conservative spending plans. 

These moves, according to people close to Samwer, reflect a dramatic shift in response to a tech downturn that has hammered the valuation of start-ups around the world. 

Florian Heinemann, a founder of Project A ventures and a former Rocket Internet executive, praised Rocket for its bevy of shrewd investments and for seeding the next generation of European tech founders and venture capitalists. But he added that while Samwer’s firm was once considered “huge,” it has “over the last few years definitely lost relevance.”

A private transformation

Rocket was founded around 16 years ago by Samwer alongside his two brothers Alexander and Marc. The company attracted attention — and fierce criticism — for its practice of taking successful Silicon Valley business models and then launching in markets outside the US.

After its share price halved during six years as a public company, the firm made plans to delist in 2020. The take-private process was contentious, after Rocket offered to buy shares below their trading price and the activist investor Elliott Management amassed a blocking stake. Eventually, Rocket succeeded but had to pay nearly double its initial offer and included a special deal for Elliott.

“The reputation just completely got shattered,” says one Berlin-based tech executive about the delisting process. “They behaved very badly on the capital market.”

In its latest annual filing for 2021, Rocket Internet revealed it had swung away from a loss to generate an annual net income of €134mn, with a portfolio of about €2.1bn in company investments. In total, it listed €4.4bn of assets.

Meanwhile, Samwer has further consolidated control by buying out his brother Alexander from the business, according to people familiar with the matter. With that control, he has pushed Rocket to develop strategies away from what made its name — incubating fast-growing internet start-ups.

Rocket’s best known unit is Global Founders Capital, the venture capital investing team. Its two €1bn funds have been bolstered by early bets on companies like the $12bn remote hiring firm Deel and $8.5bn human resources start-up Personio.

A less prominent arm, however, is Global Growth Capital, which launched in 2016 to provide debt financing. It has been a key profit generator from its two funds of €200mn and €300mn each, according to people familiar with the matter. The unit has made large deals like lending more than £100mn each to financial technology companies Revolut and SumUp. It generated a gross internal rate of return in the low teens, the people said.

Rocket also has built up a substantial public stock portfolio. It had around €673mn of public equities in 2021. According to the most recent publicly available accounts, the company’s largest equity positions were a €326mn stake in Amazon and a €107mn holding in Alibaba.

Not daring to venture

In the meantime, it appears to have largely abandoned new deals for start-ups. 

In 2020, Rocket launched Flash Ventures, a start-up fund that eventually invested about €30mn. It grew to around 40 people scattered across the globe from Australia to Latin America, who together made dozens of investments. Flash’s strategy was to take a roughly 30 per cent stake in companies at their earliest stages of development, including investing in ecommerce company Razor Group, which was last valued at more than $1bn.

Three years later, the entire Flash Ventures team has been disbanded and has stopped making further investments despite having made some promising deals, according to people familiar with its operations.

This is a reversal from Rocket’s move to hire rapidly and deploy venture capital aggressively during the pandemic tech boom. Since then, Samwer has become wary of a prolonged downturn, according to those with knowledge of his thinking. He has urged portfolio companies to maintain years of cash reserves — far more than the two years consensus among other VCs.

“Oli’s thinking correlates with the market . . . if he’s in a bad mood and the market goes really low he forgets all the values that he’s been preaching before,” said one person familiar with the firm.

Following the pandemic, Rocket slashed staff, according to people with knowledge of the matter. They said that at the start of 2022, it employed roughly 130 people across its units. That was cut to 75 staff by November 2022. Today, just a couple of dozen employees operate its various investment functions.

The company has also faced other challenges. In late 2021, Global Founders Capital attempted to raise a third fund of a similar size at €1bn, only to back off due to a lack of interest, according to people with knowledge of the move.

And a decision to launch a special purpose acquisition company — a blank-cheque vehicle to merge with another firm — ended without a deal earlier this year.

There has also been significant turnover among Rocket’s top team, with investors like Soheil Mirpour, Johann Nordhus Westarp and Hugues de Braucourt leaving, a blow to start-up founders who had built up close relationships with them. Mirpour and de Braucourt did not respond to a request for comment while Westarp declined to comment.

Those close to Samwer said that Rocket’s pivot has come alongside personal changes, even as he keeps close tabs on the business.

“He just turned 50. He has loads of money,” said one former executive. “He wants to spend time with his family, ski in Alaska and kitesurf.”